On Thursday, Yahoo named two financial veterans as new directors to its board: Catherine Friedman, a former managing director of Morgan Stanley, and Eric Brandt, former chief financial officer of Broadcom Corp., replacing two directors who stepped down in recent months and growing the board to nine. The news came just as investors were hoping for some sort of detente with activist hedge-fund investor Starboard Value LP. The New York Post had reportedthat Yahoo was going to meet with Starboard, as it considered giving the hedge fund two board seats. Starboard has been agitating for big changes, including the ouster of Yahoo Chief Executive Marissa Mayer.
“We take this news as negative, as it likely means the company is gearing up for a proxy contest,” said SunTrust analyst Bob Peck, in a note to investors.
A spokesman for Yahoo declined to comment. Officials at Starboard Value LP were not immediately available to comment.
Yahoo investor, Eric Jackson, now managing director with Spring Owl Asset Management, tweeted that Yahoo was wasting investors moneywith the changes, instead of giving Starboard any seats on the board or addressing the firm’s concerns. “Yahoo should stop wasting shareholders’ money and settle,” Jackson tweeted.
The deadline for investors to name their own slate of candidates to Yahoo’s board is March 26. It is highly likely that Starboard, which may be further annoyed by the changes announced on Thursday, is going to come up with an alternate slate of directors, so that it can move to control the board. Starboard, which stated in a letter to Yahoo in early January that “investors have lost all confidence in management and the board, would look to swiftly sell Yahoo’s core Internet business.
Starboard and an increasing number of investors have begun to believe that Yahoo is not eager to sell its core and that it has been hampering the process. Comments from a top executive at Verizon Communications Inc. earlier this week shed a bit of light on a sluggish process. Last December, Verizon said it would look at buying all or partsof Yahoo if it put its core up for sale
“Well, I can’t discuss what actually Yahoo is doing, because they’re running the process, and we’re waiting to see what that process is. So, there has been no discussions at all,” Verizon’s Chief Financial Officer Fran Shammo said at a Deutsche Bank Media, Internet and Telecom conference earlier this week. “Of course, there’s a lot of behind the scenes and everybody flurrying around because there are a lot of people that are running towards that.”
The New York Post reported this week that Yahoo has received “nearly 40 expressions of interest,”from prospective bidders, including AT&T, Verizon and others, such as private-equity firms, and is then whittling down the group of suitors to a more manageable group before it provides more detailed financial information.
“There is clearly robust interest in the core asset,” said Peck. “But access to data is critical for serious buyers. Also, as the process drags on, we think the underlying fundamentals are likely to continue to deteriorate, which could suppress the ultimate sale value.”
The timing of Yahoo’s addition of two new directors was an apparent slap in the face to Starboard and any other investors pushing for faster change or a faster sale. Instead, it may end up being a foolish move that leads to a costly proxy battle, one that will be distracting to management and could diminish the value of the core business that Yahoo is supposedly trying to sell in the first place.